Suppose That: - Malaysia Requires 1 Hour of Labor to Produce 1

Essay

Suppose that:
- Malaysia requires 1 hour of labor to produce 1 pound of rice and 2 hours of labor to produce 1 pencil;
- Indonesia requires 2 hours of labor to produce 1 pound of rice and 3 hours of labor to produce 1 pencil;
- each country has 10,000 hours of labor to allocate between the production of rice and pencils; and
- in autarky, Malaysia consumes 5,000 pounds of rice and 2,500 pencils.
- when trade occurs, the international price of rice becomes 3/5 pencils per pound of rice.
I. In Malaysia, what are the marginal productivities of labor in rice and pencil production?
II. In Indonesia, what are the marginal productivities of labor in rice and pencil production?
III. What are the autarkic prices of rice and pencils in each country?
IV. In which product will each specialize?
V. What happens to wages in each country when trade occurs?